Darden Emphasizes Specialty Restaurant Group in 3Q Earnings

In a smart move, Darden is shifting more focus to its successful Specialty Restaurant Group, hoping to inform marketing decisions at its three largest brands: Olive Garden, Red Lobster and LongHorn Steakhouse.

During Darden’s earnings call Friday, Chief Executive Clarence Otis made it clear that the Specialty Restaurant Group—consisting of Eddie V’s, Seasons 52, The Capital Grille, Bahama Breeze and Yard House—would take a larger role in shaping the company’s future.

“The changes we're making involve reshaping our portfolio to increase the size and contribution of Specialty Restaurant Group, which is something that broadens our guest and occasion base,” Otis said.

But perhaps signaling the change even more strongly was that the only company president on the call was Eugene I. Lee, the head of the specialty group. The presidents at the three largest brands, Olive Garden, Red Lobster and LongHorn Steakhouse, were absent.

The specialty group, although small, could be a mighty force in reshaping Darden’s future.

While Darden’s Olive Garden, Red Lobster and LongHorn Steakhouse have seen lackluster earnings recently (think: down 4.6 percent during the third quarter), the specialty group has performed well as a whole. Same-store sales during the third quarter were up 4.1 percent at The Capital Grille and 2.3 percent at Eddie V’s.

And while Darden has pushed value-based advertising at Olive Garden, Red Lobster and LongHorn, it has pushed quality and uniqueness at its specialty group—perhaps now informing the larger brands what value is truly all about.

Value isn’t just about price any more, and Darden executives are acutely aware. Consumers also demand better food quality and a great in-restaurant experience. Although casual dining has fallen flat in recent years, upscale casual dining—such as Seasons 52 and The Capital Grille—has seen growth in recent years.

Darden Chief Operating Officer Drew Madsen noted that Darden will have to evolve to be more things to more people—stressing the value of the three largest brands while remaining cognizant that some consumers have money to spend on more upscale dining. It would behoove the company, he said, to target both groups.

“It's important to keep in mind…not all guests are focused solely on greater affordability,” he added. “There are also economically secure guests who are looking for distinctive higher-quality dishes and are willing to pay a little more for them.”

Those upscale guests may be more likely to head to a steakhouse, rather than Olive Garden.

“The environment is strong for us,” Lee said during a question-and-answer session with investors. “We've done a lot of great work from a culinary standpoint. We're in a good place with our service platforms and we think we're positioned to continue to grow into the future.”